Asian shares sluggish as investors remain cautious of Ukraine

Asian shares were tentative on Wednesday, and copper prices slipped to six-week lows on worries about global growth, as investors remained cautious as the crisis in Ukraine threatened a fragile economic recovery in Europe. Adding to the fragile mood, mainland Chinese shares were hit by surprisingly weak loans data as markets braced for more Chinese economic reports later in the day, including industrial production and retail sales for July.

Japan's Nikkei share average edged up 0.2 percent while MSCI's broadest index of Asia-Pacific shares outside Japan stood flat. Shanghai shares, which have risen sharply over the past few weeks on hopes of recovery in Chinese economy, reversed its earlier rise to an eight-month high and fell 0.7 percent.

"Institutions will take all these data into considerations, so we cannot immediately say the market's recent rally is over or not," said Xiao Shijun, stock analyst at Guodu Securities in Beijing. Investors were also wary of developments in Ukraine as a convoy of 280 Russian trucks carrying humanitarian aid headed for eastern Ukraine, where government forces are closing in on pro-Russian rebels.

While Western officials have voiced suspicions that Russia would use a humanitarian mission as a pretext for invading Ukraine, the Russian Foreign Ministry said it would hand off the convoy to the Red Cross after crossing the border. "You can't say there's zero chance of a military intervention. But you can't bet on it either. So investors are sort of stuck at the moment." said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

In further evidence that tit-for-tat sanctions between the West and Russia are placing a burden on the European economy, a survey showed German analyst and investor morale plunged in August to its lowest level in more than 1-1/2 years. Concerns that Europe's largest economy is losing momentum just as the region is barely recovering after the debt crisis hurt German shares, the euro and the European oil prices as well.

Prices of copper, seen as a barometer of world demand, fell to a six-week low of $6,926.50 per tonne on worries about global growth. German shares fell 1.2 percent on Tuesday, leading losses in global stock prices, as a growing number of the 6,200 German firms active in Russia are warning that the standoff between Moscow and the West will hit their business.

The euro wallowed at $1.3368, sticking near nine-month low of $1.3333 hit last week. In oil market, European benchmark Brent crude oil fell to a 13-month low of $102.65 per barrel. It was last traded at $102.79.

Appetite for riskier assets have also been undermined by violence in the Middle East, giving a boost to safe-have assets such as bonds. US bonds slipped slightly on Tuesday, however, as traders sold some bond holdings in advance of a combined $40 billion in longer-dated supply, sending the 10-year yield to 2.458 percent, compared to a 14-month low of 2.349 percent hit last week.

The Japanese yen, which also tends to rise at times of depressed sentiment because of its wide use as a funding currency, was off last week's high of 101.51 yen per dollar to trade at 102.28 yen.

The yen hardly budged after data showed Japan's economy shrank an annualised 6.8 percent from the previous quarter - the biggest contraction in three years, but slightly better than market forecast.

While the soft data is unlikely to shake the Bank of Japan's conviction that the economy can ride out the tax hike impact, it could add pressure on the bank for further monetary easing if weakness in exports and consumption is prolonged.